## Facts

- Belcher Oil Company retained the law firm Morgan, Lewis & Bockius to defend a Florida lawsuit and agreed to pay litigation costs, including accountant fees.
- With authorization from Belcher’s general counsel, a Morgan partner retained Freeman & Mills, Inc., an accounting firm, to provide financial analysis and litigation support; Morgan and Freeman & Mills executed an engagement letter.
- Freeman & Mills performed the work and billed for fees and costs; after Morgan did not pay, Freeman & Mills billed Belcher directly and sought payment for approximately a year.
- Belcher refused to pay, asserting it was not consulted about the extent of services and indicating Freeman & Mills should seek payment from Morgan.
- Freeman & Mills sued Belcher for breach of contract, tort damages for “bad faith denial of contract,” and quantum meruit.
- A jury found Belcher authorized the retention, Freeman & Mills performed, and Belcher breached; it awarded contract damages and substantial punitive damages on the tort theory after finding Belcher denied the contract and acted with oppression, fraud, or malice.
- The trial court entered a corrected judgment awarding compensatory damages and punitive damages; the Court of Appeal reversed the tort recovery and limited the case to contract damages.

## Issues

1. Whether a party to a contract may recover in tort when the other party, in bad faith and without probable cause, denies the contract’s existence.
2. Whether the “bad faith denial of contract” theory should remain available in ordinary commercial contract disputes as a basis for punitive damages.

## Decision

- The California Supreme Court held that a party to a contract may not recover in tort for the other party’s bad faith denial of the contract’s existence.
- The Court overruled prior authority to the extent it recognized such a tort theory in ordinary contract disputes.
- The Court affirmed the Court of Appeal’s disposition reversing the tort recovery and limiting the matter to contract remedies (including a retrial limited to contract damages as ordered by the Court of Appeal).

## Legal Principles

- Contract remedies and tort remedies are not interchangeable; tort recovery requires breach of an independent duty imposed by law, not merely breach of a contractual promise.
- A bad faith denial that a contract exists, standing alone, is treated as part of the contract dispute and does not create a separate tort claim.
- Allowing tort damages for bad faith denial of contractual liability risks converting routine contract disputes into tort actions and introducing unpredictable punitive damages.
- The limitation does not disturb recognized exceptions where tort remedies arise from special relationships or statutes, including insurance bad faith and legislatively created civil remedies.

## Conclusion

The court confined relief for an asserted bad faith denial of a contract’s existence to contract law, rejecting tort liability and punitive damages absent an independent tort duty, while preserving established exceptions such as insurance bad faith and statutory remedies.


Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85 (Cal. 1995)